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Press Release
Oct 26, 2006 - 01:00 AM


CONTACT: Jerry Flanagan, (310) 392-0522 ext. 319

Schwarzenegger Prejudged HMO Merger Before Hearings, Received $105K from PacifiCare;

Consumer Group Calls for State Auditor to Investigate Anti-Consumer Merger and $445 Million Exec Payout
Santa monica, CA -- The Schwarzenegger Administration agreed to a $9.2 billion merger of an HMO that is a major political donor to Governor Schwarzenegger before regulators conducted public hearings or determined whether the plan would affect the quality or cost of health care, according to an official fired yesterday for financial conflicts of interest in the merger of PacifiCare and United Health. Schwarzenegger has received $105,800 in campaign contributions from PacifiCare, $78,500 of which was received before the merger was approved.

The merger was approved without adequate patient protections or assurances that patient premiums would not be increased to pay off the merger debt, including $445 million in bonuses awarded to PacifiCare executives. United Health CEO William McGuire is currently being investigated by the SEC for manipulating the value of his stock options and those of other top executives.

Kevin Donohue, Deputy Director of the Department of Managed Health Care, was fired for holding stock in United Health while he led the department's review of the company's merger request. Donohue, who chaired public hearings on the merger, told the Los Angeles Times that he had not violated state laws barring public officials from participating in a policy decision in which they have a financial interest because the merger had been approved by higher ranking Schwarzenegger Administration officials prior to his involvement, and before his public hearings.

"Californians never had a chance to get a fair review because the judge had decided the outcome before the trial began. The public hearings were a sham to give cover to the administration┐s decision to authorize bloated executive bonuses as well as further loss of choice and competition in the health insurance market, all at the expense of patients," said Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights (FTCR). "The public deserves to know every detail of what happened and the California State Auditor has the authority to investigate. Politics should never be put before patient health."

FTCR urged the independent California State Auditor to investigate, make public any inappropriate influence over regulators, and determine whether regulators should invalidate the terms of the merger, including diminished patient rights, reduced patient access to prescription drugs and the physician of their choice, and the giveaway of hundreds of millions of dollars in bonuses to top executives.

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The Foundation for Taxpayer and Consumer Rights (FTCR) is California's leading public interest advocacy organization. Visit us on the web at: http://www.ConsumerWatchdog.org.




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